Ireland and Switzerland: The Jagged Edges of the Great Inflation

Abstract

Ireland and Switzerland both had rising inflation during the early 1970s, but their experiences diverged thereafter, so that they form a rare example of two countries whose inflation rates are poorly correlated with one another over the Great Inflation period. In addition, each of the two countries' records is anomalous in important respects relative to other economies' 1970s inflations. This paper proposes that the monetary policy neglect hypothesis can account for the anomalies, providing a consistent explanation for the Great Inflation across countries. Extensive archival evidence is considered from each country regarding the doctrines that guided 1970s policymaking. This evidence establishes that Switzerland's better record is accounted for by the competition between monetary and nonmonetary views of inflation being resolved earlier and more decisively in favor of the monetary view. In Ireland, by contrast, nonmonetary views of inflation dominated policymaking throughout the 1970s.